Plaza Wires

Predominantly C&W company

Strong presence in the northern C&W markets of Delhi, UP, Haryana, Rajasthan

Plaza Wires (PWL), promoted by Sanjay Gupta & Sonia Gupta, is engaged in the business of manufacturing and selling of wires, and selling and marketing of LT aluminum cables and fast-moving electrical goods (FMEG).

PWL is one of the growing manufacturers in the wires and cables industry in northern region in India and provides an extensive range of wires and cables. Its product mix comprises different type of wires and cables (house wires, single & multicore round flexible industrial cables and industrial cables for submersible pumps & motors up to 1.1kv grade), and FMEG products such as electric fans, water heaters, switches and switchgears, PVC insulated electrical tape and PVC conduit pipe & accessories.

PWL is primarily a wires & cables (W&C) player, which accounts for 94% [84.7% copper W&C and 9.3% aluminum cables] of FY2023 revenue; FMEG 1.7% [Fans 1.3% and MCB 0.4%]; 2.4% PVC Conduit Pipe, 0.8% Tape; and 1.2% others.

Other than house wires and industrial wires (single/multi core) the other wires and cable products such as LT power control cable, TV dish antenna co-axial cables, telephone & switch board industrial cable, computer & LAN networking cable, close circuit television cables and solar cables, PVC insulated tape and PVC conduit pipe & accessories are manufactured through third party manufacturers with whom the company entered into informal arrangements. The company launched FMEG products such as Electric Fans and Water Heaters in 2016, which the company manufactures through 3rd party manufacturers. Further in 2021, it expanded its FMEG product portfolio with launch of MCBs and distribution board in the North and South Indian region.

Currently, it has its manufacturing units at Baddi (HP) with an installed production capacity of 12 lakh coils per annum. The company proposes to setup a new Manufacturing Unit with an additional installed capacity of 8,37,000 coils per annum and 8700 km per annum. With Proposed Manufacturing Unit, PWL aims to expand its manufacturing capabilities and increase installed capacities to manufacture new products such as fireproof/ survival wires, LT aluminium cable and solar cable in addition to its existing products such as PVC insulated housing wires and cables.

The company sells its products under Plaza Cables, the flagship brand, and home brands such as Action Wires and PCG. In 2021, it launched a line of house wire under the brand Action Wires for products at an economical price range.

It has over 1249 authorized dealers and distributors pan India and C & F agent in 1 state, viz., Punjab, for the period ended on March 31, 2023.

Delhi, Uttar Pradesh, Haryana, Kerala, Uttarakhandtogether account for about 75.94% of the aggregate revenue from operations (including trade discounts to dealers) in FY2023, which progressively reduced from 77.75% in FY2022, and 81.86% in FY2021. Delhi accounts for 29.44%, UP 31.11%, Haryana 6.74%, Uttarakhand 3.93%, and Kerala 4.72% of the FY2023 revenue. Of the FY2023 revenue of Rs 182.49 crore, sales to government was modest Rs 6.57 crore, and balance were from Dealers & Distributors as well as direct sales to infrastructure projects.

PWL intends to expand its market share by targeting key growth sectors such as mining, oil and gas, shipping, power, infrastructure, construction, automotive, telecommunication and agriculture. It seeks to expand its customer base and utilize its new, proposed additional capacity to develop new products for these sectors. It continues its efforts to increase revenue from existing customers and new customers by expanding its range of products and developing new products aligned with their needs.

PWL is yet to fully penetrate domestic markets in the southern India such as Karnataka, Telangana, Puducherry, and Central & East Indian states such as Odisha, Jharkhand, Arunachal Pradesh, Mizoram, Sikkim, and Nagaland. This gives room to grow with geographical expansion.

The Issue and objects

The offer consists of only a fresh issueof equity shares of 13200158 of Rs 10 face value.

Of the net proceeds from fresh issue, about Rs 24.413 crore will be used for funding the capital expenditure towards setting up of a new manufacturing unit for house wires, fire resistant wires & cables, aluminium cables, and solar cables to expand product portfolio; Rs 22 crore towards funding working capital requirements and balance is for general corporate purposes.

The company intends to expand its manufacturing capabilities for its existing and new products (like aluminium cables and solar cables) with an installed capacity of 8700 KM/annum. It also intends to expand its existing installed capacities by setting up a new manufacturing line of 8,37,000 coils p.a. within the proposed new plant location. Total estimated cost of this project is Rs 27.19 crore which will be part funded by proceeds from IPO and internal accruals.

Total borrowing as end of March 2023 stood at Rs 39.675 crore.

Strength

The product portfolio focused on various customer segments and markets. Expanding product offerings in both C&W and FMEG.

Presence across B2C (sales through dealers & distributors) as well as Government sales (through tenders) and direct sales to infrastructure projects.

Strong investments proposed across sectors such as power, realty, industrial and telecom to drive demand for cables apart from steady retail demand.

Weakness

Operating in a highly competitive segment with many regional and pan India big players.

Rely on few markets with Delhi and UP account for 29.4% and 31.1% of its FY2023 revenue from operations respectively.

PWL does not own any registered trademarks or copyrights but uses trademarks obtained on license/ assignment /registered-user basis.

Both existing and proposed manufacturing facilities are in Himachal Pradesh, making it difficult to cater to far-off Southern/Eastern markets at competitive levels to those having local manufacturing base.

One of the Group Companies, viz., Plaza Cable Electric Private Limited (PCEPL), is engaged in activities same asits business leading to conflict of interest. However, PWL and PCEPL entered a Non-Compete Agreement dated March 2, 2022, agreeing that it will not carry on such business in any other state in India except West Bengal.

Do not enter into any formal agreements with third-party manufacturers with whom it sources products.

Inadequate or interrupted supply and price fluctuation of raw materials (copper and aluminum) and packaging materials could adversely affect operations and profitability.

Has experienced negative cash flows from operations in the recent past and may have negative cash flows in the future.

Commercialization and market development of FMEG products may take longer time than expected and / or may involve unforeseen business risks.

One of the natures of its business model from government companies /tenders exposes it to liability claims and contract disputes and its indemnities may not adequately protect the company.

Contingent liability as end of March 31, 2023, stood at Rs 1.964 crore, which is about 26% of its FY2023 net profit. Trade receivables at Rs 52.134 crore are about 28.6% of FY2023 sales.

Demand for W&Cs and the FMEG industry is seasonal in nature. The business of the company is dependent on the performance of the real estate, infrastructure, and other related industries, where its products are utilized. Uncertainty regarding the real estate market, infrastructure sector, economic conditions and other factors beyond its control could adversely affect demand for the products of the company.

Valuation

Consolidated sales (restated) for FY2023 were up by 3% to Rs 182.49 crore. The OPM expanded by 110 bps to 8.6% and thus the growth ofoperating profit stood higher at 19% to Rs 15.70 crore. After accounting for lower other income, higher interest, and lower depreciation, the growth at PBT was 20% to Rs 10.33 crore. Eventually, net profit was up by 26% to Rs 7.51 crore.

Thus, the FY23 EPS (on expanded equity as on upper price band) was Rs 1.7. And the upper price band discounts the FY2023 EPS by about 31.8 times.

In comparison, Cords Cable, Ultracab India, V Marc India, Dynamic Cables and Paramount Communications quote at a PE of 17.6 times, 26 times, 22.5 times 32.7 times and 30.1 times, respectively.